Good afternoon, ladies and gentlemen. My name is Didi, and I will be the host operator on this call. After the prepared comments, we will conduct a question-and-answer session. Please note that this call is being recorded on August 1, 2024, at 5:00 p.m. Eastern Time. I would now like to turn this meeting over to your host for today’s call, Mike Rost, Senior Vice President of Corporate Development and Investor Relations at Workiva. Please go ahead.

Good afternoon and thank you for joining us for Workiva’s second quarter conference call. During today’s call, we will review our second quarter results and discuss our guidance for the third quarter and full year 2024. Today’s call has been prerecorded and will include comments from our Chief Executive Officer, Julie Iskow, followed by our Chief Financial Officer, Jill Klindt. We will then open the call up for a live Q&A session. A replay of this webcast will be available until August 14, 2024. Information to access the replay is listed in today’s press release, which is available on our website under the Investor Relations section. Before we begin, I would like to remind everyone that during today’s call, we will be making forward-looking statements regarding future events and financial performance, including guidance for the third quarter and full fiscal year 2024. These forward-looking statements are subject to known and unknown risks and uncertainties. Workiva cautions that these statements are not guarantees of future performance. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call. Please refer to the company’s annual report on Form 10-K and subsequent filings for factors that could cause our actual results to differ materially from any forward-looking statements. Also, during the course of today’s call, we will refer to certain non-GAAP financial measures. Reconciliations of non-GAAP to GAAP measures and certain additional information are also included in today’s press release. With that, we’ll be turning the call over to CEO, Julie Iskow.

Thank you, Mike, and thank you to everyone on today’s call. Jill and I look forward to sharing our Q2 results. We’ll also discuss our outlook for Q3, our updated guidance for the full year 2024, and a revision to our long-term financial model. Workiva is once again in a beat and raise position. We delivered solid results in Q2 with subscription revenue growing at 18% and total revenue growing at 15%. These results drove a beat to the high end of our revenue guidance. We also delivered a Q2 operating margin well above the midpoint of our guide. We’ll be raising our full year revenue guidance based on record quarterly bookings and a more optimistic market outlook. In Q2, we saw a healthy improvement in the buying environment marked by broad-based demand across our entire solution portfolio. This demand was driven by a number of multi-solution and large contract platform deals, whether from new logos or account expansions, we’re encouraged by our win rates, our deal sizes and our platform wins. We delivered standout performance in ESG this quarter, which was yet again a top booking solution. We also drove continued momentum in Europe in both financial and ESG reporting. The value of our platform continues to resonate. We win with our platform, we win with our partners, and we win with assured integrated reporting, which now includes carbon accounting, the most consistently regulated part of ESG. I’ll move on now to deal highlights. I plan to continue to take the time on our earnings calls to highlight some of our key wins across our solution portfolio. These customer wins provide meaningful insight into our business, including the combination of solutions we’re selling, the location and the types of customers we’re selling to and the role that our partners…

Thank you, Julie, and good afternoon, everyone. I will be covering five topics today. First, I will cover the financials and key metric highlights for the second quarter of 2024. Second, I will walk you through our financial model, reflecting updated medium-term 2027 targets and adding a longer-term 2030 model. Third, I will highlight the $100 million share repurchase program we announced today. Fourth, I will discuss our Sustained Life acquisition. Then finally, I will provide commentary and guidance for Q3 and the full year 2024 before opening the line for questions. . As Julie mentioned, we beat the high end of our Q2 revenue guidance, driven by strong subscription revenue growth. We also beat the midpoint of our operating margin guidance, generating $3.6 million of operating profit, a 240 basis point improvement versus Q2 2023. We generated $177.5 million of total revenue in the second quarter, delivering growth of 15% from Q2 2023. Subscription revenue was $160.7 million, up 18% from Q2 2023. A combination of new customers and account expansions continue to contribute to our strong revenue growth. New customers added in the last 12 months accounted for 49% of the increase in subscription revenue. Professional services revenue was $16.8 million, down 8% from Q2 2023, driven by a decline of setup and consulting services revenue. We anticipate that progress on our strategy to shift lower margin setup and consulting services to our advisory and consulting partners will lead to a continued decrease in setup and consulting revenue throughout 2024 compared to 2023. I’ll now move on to our performance metrics for the quarter. One note, these metrics do not include any impact from the Sustain.Life acquisition. We had 6,147 customers at the end of Q2 2024, a growth of 287 customers from Q2 2023. Our gross revenue…

[Operator Instructions] And our first question comes from Terry Tillman of Truist Securities. Your line is open.

Yes. Hi, Julie, Jill and Mike, thanks for taking my questions and congratulations on the improved bookings. I think you said record bookings, if I’m not mistaken. I had a question on the midterm model. So for 2027 I don’t think I have this mistaken, but I think at 1 point, you all had kind of a flag in the ground in terms of $1 billion in revenue. Does that still hold? And then this is a pretty meaningful increase in the sales and marketing investments, are you committed to growth acceleration or any more you could share on kind of how you could see growth accelerate into ‘27? And I have a follow-up.

First, yes, you heard right. It was a record bookings quarter for us. Indeed, even though it was a Q2 quarter. And yes, we are committed to the numbers around that $1 billion. So we’ve not changed that. We will be above $1 billion.

Okay. Well, kind of related to the first question though, Julie, just relates to these increased growth investments, I mean, how quickly could you see an inflection or reacceleration in subscription revenue like before ‘27. Any more color there? And I did have a follow-up on carbon.

Sure. We do expect the acceleration of the revenue. I mean, we are focused on growth. We aspire to get back to the high teens 20% subscription revenue in the future. We’re selling a differentiated solution into a large, relatively unaddressed TAM, we are also hopeful we’ll see a return to cap markets, continued adoption of our ESG software to address new regulations and stakeholder demands and just an overall improved software spending environment. So the answer to your question is yes, we will – we expect to see an acceleration towards the 20%.

Sounds good. And I guess on carbon, so congratulations on the unveiling of that. Just any more color you could share in terms of what kind of economics you could get with that, whether it’s an installed base deal or a new customer deal? And really, what would be the first metric we would see, is it 100,000 customers 150, 300. Just anything where we could foresee a KPI where this is reflecting success. Thank you.

I can let Jill talk numbers. But this is not a – we’re going after direct carbon revenue, and that’s the main metric. We talked about it being a platform play being very strategic for us. We believe it will make our ESG solution and our assured integrated reporting platform, again, even more relevant. So the goal is to expand on our sales momentum and further capitalize on ESG and the market opportunity on the platform, very early now to tell and probably give numbers on exactly what you’re asking around. But the why for carbon is there’s a market demand, a growth opportunity aligned well with our strategy of assured integrated reporting.

Thank you. Our next question comes from Rob Oliver of Baird. Your line is open.

Great. Good afternoon, everybody. Julie, for you first. Just I was wondering if you could expound a little bit on the improvement in the buying environment, if there were particular sectors and that were drivers? And what was it that caught your attention? Where it deals – were there deals that have lingered in the pipeline that suddenly picked up steam. I think you mentioned some increased deal momentum, if I’m everything properly around ESG. So just any color around that improved buying environment that you cite would be great. And then I had a quick follow-up for Jill.

Sure. I’m glad you asked the question, Rob, because it’s one with a different answer this quarter than we’ve had in recent quarters when the question has been asked. As I mentioned in the prepared remarks, we saw a healthy improvement in the buying environment. It was marked by broad-based demand across the entire solution portfolio, again, record bookings quarter leads to optimism. And while we, yes, continue to see a soft IPO market, and we can’t conclude the market is back, I mean, we saw some great platform, deals closed, a few of which I highlighted on the call, we saw large contract customers increase multi-solution deals, platform plays. We just remain optimistic about the value we’re delivering to our customers, and we’re seeing our platform resonate in the market.

Great. Thank you. Helpful. And Joe, just for you, a follow-up to Terry’s question on the revenue target, which again was not included in the slide deck, so by a mission. I think you just you guys just affirmed that it still stands, but can you just remind us what that $1 billion target year is of achievability?

We’ve not set a specific year, but at this point, for the 2027 model, we would be well over $1 billion. And then for the 2030 year, we would be more than double where we would – where we’re at today, it would be our expectation – be the expectation.

Got it. So there’s no current. It’s – because there was some debate about whether this was a 2026 or 2027 target when you set the $1 billion. And what you’re saying is, we’re just going to get to $1 billion?

Correct. By the time that we get to that 2027 model year though, we do expect to be well over $1 billion on an annual basis. .

Clear. Okay. Really helpful. Thank you, guys, very much appreciate it.

Thanks.

Thank you. Our next question comes from Steve Enders of Citi. Your line is open.

Okay. Great. Thanks for taking the questions here. Good to hear the buying environment is getting better. I guess, how is the pipeline shaping up at this point? And I guess, how you kind of viewing how that’s shaking out for the rest of the year to give the confidence in the rates here.

Sure. We’re continuing to build pipeline and won’t make forward-looking statements here, but I will give it a positive. We are – again, our platform is resonating in the market. There’s reception to our launch of Workiva Carbon as well as the portfolio across the platform. Just great momentum. Also in geos. We’ve had strong quarters, which you know. So we are pleased with our momentum in the geos that we’re investing in and focusing on and again, platforms resonating.

And as a result of the great quarter that Julie mentioned we had for Q2, that is the main driver of our raise on revenue through the end of the year. .

Okay. That’s helpful context there. And then I guess, with the Sustain.Life acquisition, I guess, is there any – how should we think about the inorganic contribution to the outlook, either from a revenue perspective or the impact that’s having on the EBIT outlook?

As I – in the prepared remarks, you heard me talk about the size of Sustain.Life, and it was a relatively small company, about 50 people. They’ve only had their product in the market for a couple of years. And so the impact from Sustain.Life is fairly small on our business. The majority of that outperformance and the majority of the raise in our guide for revenue really is coming from organic business. It’s – that’s the focus.

And I’ll add by reiterating, I mean, we’ve been talking to thousands of customers, and we found that, again, carbon accounting is an immediate first need for many prospects that are at the beginning stage of their ESG sustainability journey with us. And yes, it’s a core requirement in CSRD and other regulations, but we found many customers want a single vendor for carbon accounting and ESG, and we want to be there and grab that opportunity.

Okay. Great to hear. Thanks for taking the questions.

Thank you.

Thank you. Our next question comes from Jacob Roberge of William Blair. Your line is open.

Hi, thanks for taking the questions. Can you talk about how execution with your EMEA team has been trending this year? And just where customer appetite is for ESG reporting in Europe, just given the ramping CSRD requirements heading into next year?

Sure. With pleasure. Our momentum continues to build in Europe. We had a very strong Q2 we’re pleased with the momentum we’re seeing. And as we mentioned last quarter, we’re up now at 15% of revenue outside of North America, which is primarily Europe, highlighted in my prepared remarks, we continue to have some signature wins there, multi-solution, six-figure deals with partners assured integrated reporting, that integrated report, it resonates. Our value proposition is resonating. So, we continue to see the momentum. Now, despite the progress, I will say we are still very open. We have been and continue to be about the need for improvement there, but we have got great sales leadership. We are getting our strategies in the various geos defined and executed on, and CSRD is absolutely showing some green shoots there, and we have had some early customer wins driven by the requirements. So, very optimistic and continue of the momentum.

Okay. Very helpful. And then for the customers in Europe that aren’t using your financial reporting solution, how are you getting your foot in the door for ESG reporting? And what solutions are you competing with in that market? I think you referenced the industrial win that you had where you beat out two other companies. So, it would be just great to understand the context behind that.

So, the – we land on almost most – in most regions with financial reporting in some form of it, whether it’s an annual interim or private company reporting or multi-entity reporting and also ESG in Europe with the CSRD coming. The competition we have, again, is there – we have talked about this prior that it’s very quite question [ph], might be one because it’s just targeted at our capability rather than a platform play. In Europe, especially, it’s again the integrated report. Very well understood, it’s the financial data with the non-financial or financial reporting with ESG along with assurance. And that’s what’s resonating in the market. So, whether we land with financial reporting, whether we land with ESG or something beyond in the GRC controls, we continue to have the platform being the main point of focus.

Great. Thanks and congrats on the results.

Thank you.

Thank you. Our next question comes from Alex Sklar of Raymond James. Your line is open.

Hi. Thank you. Julie or Jill, just following up on Rob’s question, the better demand backdrop, can you just help frame was this better backdrop kind of did it persist the entire quarter and into July? Is there any way you can kind of quantify from the KPIs, there was faster sales cycles or conversion rates just relative to what the past few quarters were, and then in terms of the back half outlook, is the expectation that this better backdrop kind of persists, or did you kind of bake in any added conservatism around like, hey, maybe this is just one quarter, it’s not a new trend yet. Just curious kind of how you approach the outlook. Thanks.

As far as the outlook and Alex, thanks for the question. We were still being cautious. There is a lot going on, as you know, in the macro and political environment through the end of the year. So, we haven’t built in a large growth on our bookings at the end of the year. So, I would say that we are still being careful through the end of the year, what’s in our model and what’s in our guide. So, there is still room for upside. And I don’t know, Julie, was there anything else that you wanted to…?

I will just say that we are more optimistic given our strong Q2. And again, we are seeing a lot of proof points, as I described and as we highlighted on the prepared remarks. So, that gives us reason for optimism.

Okay. Perfect. And then I just want to dig into some of the incremental sales and marketing kind of go-to-market investments, and you called out ESG opportunity, in particular, when we look at those, the new targets, it kind of implies maybe $100 million of incremental sales and marketing versus kind of the run rate today. So, can you just talk about what that actually looks – what’s that actual investment look like? Is it just a lot more ESG dedicated sales reps, is it more on the just broader platform folks, more in Europe? I am just kind of curious to be kind of talk a little bit more about where kind of you are planning to put some of these incremental dollars? Thanks.

I mean you have already listed out a bunch of them, Alex, actually, is that we are going to get better coverage across all areas of our business. We want to make sure that we have the right coverage across our pipeline so that we can get deals closed more quickly, and more effectively. And we want to be able to make sure that we are having all the conversations that we want to have, given the demand environment and the timing that we want to achieve with this, which would be to really do this quickly.

Maybe if I just…

Just going to follow-on and say we are investing in the sales and marketing because we have an opportunity in front of us that’s large and significant, again, that TAM, but it also has a time element to it as we have described with regulation. And the first cohort of companies that need to comply with CSRD are filing their non-financial data, their 2024 data in 2025. So, there is a time element and we are going after it. And hence, we are focused on the opportunity for our platform in going after the market opportunity for growth.

Okay. I appreciate that added color. And just one clarification, in terms of kind of coverage of the pipeline, Jill, that you brought up, are you thinking now maybe there is more of an opportunity to cover some of the middle market companies that are going to have to adopt some of the CSRD rules that maybe before weren’t perfect platform that customers, I am curious what that coverage actually means in practice. Thanks.

Sure. So, I mean I think that when we think about Workiva Carbon and where we want to land that, the mid-market is a perfect place for it. I think that it’s absolutely something that we will be talking to more mid-sized companies about as they have a reporting requirement, it’s not a regulatory requirement. The being asked for this information is something we have talked about a lot, that companies are looking for ways to solve for sustainability and the way that they talk about their ESG metrics. And we think that that’s a good place for us to land Workiva Carbon.

Perfect. Thank you so much both for the color.

Alex, thank you for the question.

Thank you. Our next question comes from Adam Hotchkiss of Goldman Sachs. Your line is open.

Great. Thanks so much for taking the questions. I would be curious just to start, Jill, what you are seeing or I am sorry, Julie, what you are seeing just more broadly on the demand side for ESG. I know we had previously talked about that ramping up relatively slowly. But now that we are approaching some of the first deadlines around CSRD, what’s your view on just more broadly the adoption cadence that these companies are taking relative to the regulatory requirements? Are you hearing sort of broader-based global adoption cadences, or are you hearing folks waiting until particular pieces of their business are subject to specific regulatory deadlines. I am just curious as to how folks are approaching it and how that’s evolved in the last three months.

Sure. And as we talked about before, the customer bases and prospect base, we look at as mature and already moving and having some sort of reporting in place, and then there is those that are just not going to comply until they need to and the regulations they are in place and as a forcing function. But we are – from what we have seen, we are very pleased with the way it’s performing. It remains again, one of our top looking solution now quarter-after-quarter. We are eight quarters in a row. And even without regulation, we are seeing customers buy the ESG capabilities. I mean they want to be prepared. Many know its complex. They don’t want to be left behind. They know it’s coming, and many have set science-based targets that they need to track to, as I mentioned on the market, and they want to address the needs of multiple stakeholders. That’s really what it is. So, we are encouraged by the pickup, yes, the CSRD wins that we saw in Q2. However, even if the company doesn’t need to comply directly with CSRD, if they are in the supply chain, they will need to report on their non-financial data. So, we have consistently communicated that this will be a long durable demand market with what we believe will be growth over multiple years, but we are seeing proof points, and we are enthusiastic about the demand and the momentum we are seeing.

Okay. Thanks Julie. That was really helpful. And then, Jill, I just wanted to touch back on the sales and marketing guidance change. I guess what changed versus three months ago or versus last Investor Day around the sales and marketing calculus. I fully understand you want to make sure that you are covering the pipeline appropriately. But was there more visibility on the top line, was there early indicators around sales performance that made you say, hey, it would be helpful to have more coverage here. Just anything that changed and drove the decision making here besides this just being a sort of a multiyear decision making process to guide you to where you are today?

So, I think that, as Julie talked about in her remarks, we really are looking at Workiva Carbon as a very timely opportunity. And we are, at this point, looking at ways to make investments within sales and marketing and with coverage, like we had just talked about across more areas of the pipeline, more geographies so that we can hit while the iron is hot in a lot of ways, I guess and make sure that we are taking advantage of the opportunity to close as many deals as we can as soon as possible. We are really great about retaining customers. We are really great about making customers love our platform. We know that they will. And so we want to get as many of them on as we can as these regulations are coming into play as quickly as we can.

I think the strength of our success in the market, combined with the time element and we have moved into this new category with sustainability, ESG and carbon. It was time to double down here on the investment to go after the market opportunity.

Okay. Very clear. Thanks Julie. Thanks Jill.

Thank you.

Thank you. Our next question comes from Ryan Krieger of Wolfe Research. Your line is open.

Hey guys. Thanks for taking the question. Just on the net retention side, can you just parse out what you saw in the quarter from new customers versus back to base, and it’s great to hear about the improved buying environment, but we did see retention tick down again to 109, so any pressure to call out there on the expansion side? And then how should we think about that metric maybe moving into the second half?

Yes. And this is one that it can move around a little bit, there is a little bit of noise, but we did call out in the prepared remarks that we had about 49% of our revenue came from new customers added in the last 12 months. That is higher than it has been in the past couple of quarters. So, we did see over the past few months more newer customers adding into revenue, and this is always going to fluctuate around a little bit, but we are still very encouraged by what we saw in Q2, and we do think that we can continue to improve that in our metric.

I will follow it up saying we had new customers coming from all regions and really broad-based across the portfolio.

Awesome. Thank you.

Thank you, Ryan.

Thank you. That concludes our Q&A session and today’s conference call. You may now disconnect. Thank you for participating.